Result Update Berger Paints Downgrade to Reduce (Prev. - Accumulate) Continues to gain market share Revenues (consol.) grew by 11.% YoY to ` 12.bn in-line with our estimate. Standalone revenues were up 11.3% at ` 11.4bn (implied volume growth of ~9%) and subsidiary business witnessed 1.% YoY surge in revenues. The primary analysis suggests that the volume growth was lower compared to APL (~9-1%) and Nerolac (~1%). Gross margins (consol.) contracted by 1bps YoY at 42.9%, due to rise in key RM prices. EBITDA grew by 11.4% YoY at ` 2.bn, while EBITDA margins remained flat YoY to 1.%. Despite contraction in GM and bps increase in employee spends, 17bps decrease in other expenses offset the decline in EBITDA margin. APAT jumped 17.7% YoY to ` 1.1bn. Including OCI and exceptional gain of ` 442mn related to slump sales in Q2FY17, the RPAT jumped 4.1% to ` 1.4bn Berger is gaining -1bps market share annually in past 4- years. After continuously outpacing APL volume growth in past few quarters, for the first time Berger reported lower volume growth. We attribute this to supply hurdles during Jul 17 due to GST implementation. However, new and innovative launches would help the company to gain market share. We believe that the company has lower penetration compared to the leader which presents higher scope for further growth. With better monsoon in the last couple of years, painting activities are expected to increase in coming years. We expect pent-up demand in the system as FY17 was partially impacted by demonetisation and feel good factor remains with better economic conditions, especially in rural markets. Berger, the second largest player in the domestic decorative paint industry is likely to benefit more due to (1) rising distribution reach (2) strong presence in urban markets and (3) attractive product offering in all categories. Further, the company s continuous efforts to improve operating efficiency will enhance operating margins. We expect Berger to report EBITDA margin improvement with stable demand and favorable business conditions Valuing Berger at 43x FY19E EPS to arrive at a TP of ` 263. Downgrade to Reduce. (Prev.- Accumulate). Q2FY1 Result (` Mn) Particulars Q2FY1 Q2FY17 YoY (%) Q1FY1 QoQ (%) Net Revenue 12,17 11,466 11. 12,471 2. Total Expenditure 1,26 9,67 11.9 1,62 1.9 PBIDT (Excl OI) 1,991 1,7 11.4 1,1 7.6 Other Income 11 14 (44.9) 13 (2.) Depreciation 36 273 12.2 3. Interest 76 1.4 2 172. PBT 1,711 1,64 3. 1,64 3.4 Tax 622 73 (14.7) 6 11.9 Profit After Tax 1, 919 1. 1,9 (.9) Minority Interest (2) (27) NM (31) NM APAT 1,113 946 17.7 1,129 (1.4) RPAT 1,421 1,366 4.1 1,32 37.7 bps bps Gross Profit (%) 42.9 43.9 (1) 4.6 23 Employee Exp (%) 7.4 6.6 6.7 7 Other Exp (%) 2. 21.7 (17) 19. 1 EBITDA (%) 1. 1.6 (1) 14. 7 EBIT (%) 13.9 14. (9) 13. PAT (%) 11.1.1 3.3 2 November 6, 217 CMP ` 26 Target / Upside ` 263/3% BSE Sensex 33,731 NSE Nifty 1,41 Scrip Details Equity / FV Market Cap ` 971/`1/- ` 249bn USD 3.bn 2-week High/Low ` 266 / 17 Avg. Volume (no) 7,942 NSE Symbol Bloomberg Code BERGEPAINT Shareholding Pattern Sept 17 (%) BRGR IN Promoters 7. MF/Banks/FIs 3.3 FIIs 11.1 Public / Others 1.6 Valuation (x) FY17 FY1E FY19E P/E 64. 2.9 41.1 EV/EBITDA 34.4 3. 24.4 ROE 24. 23. 2. ROCE 3.4 2. 32.3 Estimates (` mn) FY17 FY1E FY19E Net Sales 4,23,999,74 EBITDA 7,16 7,7 9,779 PAT 4,29 4,697 6,46 EPS 4. 4. 6.2 Sr. Analyst: Sachin Bobade Tel: +9122 496 9731 E-mail: sachinb@dolatcapital.com Associate: Nikhat Koor Tel: +9122 496 9764 E-mail: nikhatk@dolatcapital.com
Apr-1 Oct-1 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-1 Oct-1 Mar-16 Sep-16 Mar-17 Jan-13 May-13 Aug-13 Nov-13 Mar-14 Jun-14 Sep-14 Dec-14 Apr-1 Jul-1 Oct-1 Jan-16 May-16 Aug-16 Nov-16 Feb-17 Jun-17 () (3) () (1) 7 11 12 12 14 2 1 1 Revenue growth (%) EBITDA margin (%) 17.4 17 1. 1. 13.3 13.3 13.2 14.1 1.61.614. 14. 1 13 11.4 11.6 11 9 () 7 4 Gross margin (%) Volume Growth (%) 1 4 42 39 41.2 41.9 43. 39.1 43.3 4.4 43. 44.4 43.9 42.2 41. 4.6 42.9 1 () 1.7 6.3 6.3 12.2. 9..9 1.6 2.9.4 6.4 7.2 2.3 4. 4.3 2.2 (2.1)(2.1)(2.6) (4.3) (2.6)(2.6)(2.6) (2.6) 2.7 2.1 36 Price growth Volume growth Trend in Titanium Dioxide Price (INR/KG) Trend in Brent Price (USD) 2 14 2 12 1 1 1 6 4 2 November 6, 217 2
Income Statement (` mn) Net Sales 42,231 4,23,999,74 Other income 347 4 2 64 Total Income 42,7 46,6 1,24 9,396 Total Expenditure 3,74 3,337 43,112 4,97 Cost of RM Consumed 24,72 2,923 29,721 33,2 Employee Expenses 2,73 3,67 3,72 3,96 Selling & Adm.Expenses 2,7 2,413 2,2 2,992 Other Expenses 6,269 6,933 7,317,7 EBIDTA (Excl. OI) 6,447 7,16 7,7 9,779 EBIDTA (Incl. OI) 6,794 7,731,412 1,426 Interest 273 162 2 1 EBDT 6,21 7,69,212 1,239 Depreciation 97 1,1 1,23 1,346 PBT & EO Items,3 6,4 6,96,93 Extra Ordinary Exps/(Inc.) 442 Profit Before Tax,3 6,46 6,96,93 Tax 1,6 2,294 2,377 2,967 Net Profit 3,649 3,72 4,2,926 Share of associates (7) (11) (11) (12) Net Profit (After minority) 3,76 3,3 4,697 6,46 Net Profit (Adj.) 3,76 4,29 4,697 6,46 Balance Sheet (` mn) Sources of Funds Equity Capital 694 971 971 971 Reserves 14,927 1,4 2,9 24,3 Net Worth 1,621 19,16 21,61 2,24 Minority Interest (11) (23) Secured Loans 2,1 2,621 1,4 1,46 Unsecured Loans 1,437 1,441 2,317 2,197 Loan Funds 3,44 4,62 3,62 3,662 Deferred Tax Liability 67 7 7 7 Total Capital Employed 19,43 23, 26,41 29,7 Applications of Funds Gross Block 1,44 13,13 13,3 14,63 Less: Accumulated Dep. 4 1,744 2,996 4,342 Net Block 9,629 11,36 1,7 1,261 Capital Work in Progress 11 622 63 63 Investments 3,47 4,721 4,721 4,721 Current Assets, Loans & Advances Inventories 7,332 9,3 9,6 1,124 Sundry Debtors,44,71 6,224 7,9 Cash and Bank Balance 1,3 1,2 4,947,732 Loans and Advances 1,27 1,3 1,3 1,3 Other Current Assets 47 79 19 19 sub total 1,93 17,624 21,732 27,43 Less: Current Liabilities & Provisions Current Liabilities,67 1,6 1,72 12,339 Provisions 29 36 36 36 sub total,6 1,443 1,9 12,72 Net Current Assets 6,22 7,12 1,774 14,713 Total Assets 19,43 23, 26,41 29,7 E Estimates Cash Flow (` mn) Profit before tax,92 7,31 6,96,93 Depreciation & w.o. 97 1,1 1,23 1,346 Net Interest Exp 273 162 2 1 Direct taxes paid (1,6) (2,294) (2,377) (2,967) Change in Working Capital 1,13 (1,27) 33 (14) Non-Cash (362) (97) (A) CF from Opt. Activities,742 4,17 6,364 7,36 Capex (1,176) (2,644) (191) (7) Free Cash Flow 4,66 1,463 6,173 6,6 (Inc). / Dec. in Investments (1,34) (946) (B) CF from Invt. Activities (2,79) (3,9) (191) (7) Issue of Equity/ Preference 27 Inc./(Dec.) in Debt (2,319) 7 (2) (2) Interest exp net (273) (162) (2) (1) Dividend Paid (Incl. Tax) (1,) (1,169) (1,2) (2,33) (C) CF from Financing (3,677) (46) (2,21) (2,771) Net Change in Cash (644) (29) 3,922 3,7 Opening Cash balances 1,69 1,3 1,2 4,947 Closing Cash balances 1,3 1,2 4,947,732 Important Ratios (A) Measures of Performance (%) EBIDTA Margin (excl. O.I.) 1.3 1. 1. 16.6 EBIDTA Margin (incl. O.I.) 16.1 17. 16. 17.7 EBDT Margin 1.4 16.6 16.1 17.4 Tax/PBT 34.1 37.9 34.2 33.4 Net Profit Margin.6.2 9. 1.1 (B) As Percentage of Net Sales Raw Material. 6.9.3 6.6 Employee Expenses 6. 6.7 7. 6.7 Selling & Adm. Expenses 4.9.3 4.9.1 Other Expenses 14. 1.2 14.3 14.9 (C) Measures of Financial Status Debt / Equity (x).2.2.2.1 Interest Coverage (x) 24.9 47.7 42.2.6 Debtors Period (days) 47.1 46.4 44. 44. Closing stock (days) 63.4 7. 64.9 62.9 Inventory Turnover Ratio (x). 4.9.6. Fixed Assets Turnover (x) 4. 3. 3.7 4. WC Turnover (x) 6. 6.3 4.7 4. Non-Cash WC (` Mn),17 6,17,27,91 (D) Measures of Investment EPS (`) (Reported).3 3.9 4.7 6.1 EPS (`).3 4. 4. 6.2 CEPS (`) 6.. 6.1 7.6 DPS (`) 1.2 1.6 1.6 2. Dividend Payout (%) 23.4 4.3 32.7 32.7 Book Value (`) 22. 19.6 22. 26.3 RoANW (%) 26.3 24. 23. 2. RoACE (%) 29.7 3.4 2. 32.3 RoAIC (%) 31.9 31.9 32.3 42.7 (E) Valuation Ratios CMP (`) 26 26 26 26 P/E (x) 47.9 64. 2.9 41.1 Market Cap. (` Mn) 177,36 24,76 24,76 24,76 MCap/ Sales (x) 4.2. 4.9 4.2 EV (` Mn) 176,1 246,92 242,77 23,7 EV/Sales (x) 4.2.4 4. 4.1 EV/EBDITA (x) 27.4 34.4 3. 24.4 P/BV (x) 11.4 13.1 11.4 9.7 Dividend Yield (%)..6.6. E Estimates November 6, 217 3
Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Oct-17 Nov-17 DART RATING MATRIX Total Return Expectation (12 Months) Buy > 2% Accumulate 1 to 2% Reduce to 1% Sell < % Rating and Target Price History 3 3 2 2 Month Rating TP (`) Price (`)* Aug-16 Reduce 232 242 Nov-16 Reduce 24 29 Oct-17 Accumulate 27 23 * As on Recommendation Date 1 Berger Paints Target DART Team Purvag Shah Managing Director purvag@dolatcapital.com +9122 496 9747 Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 496 974 CONTACT DETAILS Equity Sales Designation E-mail Direct Lines Kishor Bagri, CFA VP - Equity Sales kishorb@dolatcapital.com +9122 496 9746 Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com +9122 496 9762 Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 496 973 Yomika Agarwal VP - FII Sales yomika@dolatcapital.com +9122 496 9773 Derivatives Strategist Designation E-mail Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 496 97 Equity Trading Designation E-mail P. Sridhar VP and Head of Sales Trading sridhar@dolatcapital.com +9122 496 972 Chandrakant Ware AVP - Equity Sales Trading chandrakant@dolatcapital.com +9122 496 977 Derivatives Trading Designation E-mail Shirish Thakkar AVP - Derivatives shirisht@dolatcapital.com +9122 496 972 Hardik Mehta Sales Trader hardikm@dolatcapital.com +9122 496 974 Dolat Capital Market Private Limited. 2, Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai - 4 1
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